First Look

First Look summarizes new working papers, case studies, and publications produced by Harvard Business School faculty. Readers receive early knowledge of cutting-edge ideas before they enter the mainstream of business practice. For complete details on faculty research, see our Working Papers section.

August 21

Is the MBA about to be disrupted?

It's not often that a Harvard Business School professor is a protagonist in one of the School's cases, but Clayton Christensen, the creator of the disruptive innovation theory, is at center stage in "Driving Towards a Disruption?" Written by Willy Shih and William Noble, the case ponders the impact that online degree programs are having on educational institutions such as HBS, and asks whether the value of an MBA degree is threatened.

Coal mines and entrepreneurship

Researchers often look to proximity of surrounding resources to help explain why certain locations bloom with entrepreneurial activity. In the working paper Entrepreneurship and Urban Growth: An Empirical Assessment with Historical Mines, researchers Edward L. Glaeser, Sari Pekkala Kerr, and William R. Kerr find a strong connection between a city's initial entrepreneurship and subsequent economic growth. The research might shed light on how entrepreneurship drives job growth in cities.

Economic power of immigrants

In another bow to the power of location, the paper Channels of Influence finds that companies that serve strong immigrant populations near their firm headquarters see higher stock returns by up to 7 percent. "Using customs and port authority data on the international shipments of all U.S. publicly-traded firms, we show that firms are significantly more likely to trade with countries that have a strong resident population near their firm headquarters," write researchers Lauren Cohen, Umit G. Gurun, and Christopher J. Malloy. "In sum, our results document a surprisingly large impact of immigrants' economic role as conduits of information for firms in their new countries."

— Sean Silverthorne

Publications

The Size and Composition of Corporate Headquarters in Multinational Companies: Empirical Evidence

Authors:

David Collis, David Young, and Michael Goold

Publication:

Journal of International Management 18, no. 3 (September 2012)

Abstract

Based on a six country survey of nearly 250 multinationals (MNCs), this paper is the first empirical analysis to describe the size and composition of MNC headquarters and to account for differences among them.

Working Papers

Field Evidence on Individual Behavior & Performance in Rank-Order Tournaments

Abstract

Economic analysis of rank-order tournaments has shown that intensified competition leads to declining performance. Empirical research demonstrates that individuals in tournament-type contests perform less well on average in the presence of a larger number of competitors in total and superstars. Particularly in field settings, studies often lack direct evidence about the underlying mechanisms, such as the amount of effort, that might account for these results. Here we exploit a novel dataset on algorithmic programming contests that contains data on individual effort, risk taking, and cognitive errors that may underlie tournament performance outcomes. We find that competitors on average react negatively to an increase in the total number of competitors, and react more negatively to an increase in the number of superstars than non-superstars. We also find that the most negative reactions come from a particular subgroup of competitors: those that are highly skilled, but whose abilities put them near to the top of the ability distribution. For these competitors, we find no evidence that the decline in performance outcomes stems from reduced effort or increased risk taking. Instead, errors in logic lead to a decline in performance, which suggests a cognitive explanation for the negative response to increased competition. We also find that a small group of competitors, who are at the very top of the ability distribution (non-superstars), react positively to increased competition from superstars. For them, we find some evidence of increased effort and no increase in errors of logic, consistent with both economic and psychological explanations.

Channels of Influence

Authors:

Lauren Cohen, Umit G. Gurun, and Christopher J. Malloy

Abstract

We demonstrate that simply by using the ethnic makeup surrounding a firm's location, we can predict, on average, which trade links are valuable for firms. Using customs and port authority data on the international shipments of all U.S. publicly-traded firms, we show that firms are significantly more likely to trade with countries that have a strong resident population near their firm headquarters. We use the formation of World War II Japanese Internment Camps to isolate exogenous shocks to local ethnic populations, and identify a causal link between local networks and firm trade links. Firms that exploit their local networks (strategic traders) see significant increases in future sales growth and profitability, and outperform other importers and exporters by 5%-7% per year in risk-adjusted stock returns. In sum, our results document a surprisingly large impact of immigrants' economic role as conduits of information for firms in their new countries.

Abstract

Empirical research suggests that parents' economic resources affect their children's future earnings abilities. Optimal tax policy therefore will treat future ability distributions as endogenous to current taxes. We model this endogeneity, calibrate the model to match estimates of the intergenerational transmission of earnings ability in the United States, and use the model to simulate optimal policy numerically. Optimal policy is more redistributive toward low-income parents than existing U.S. tax policy. The optimal policy increases the probability that low-income children move up the economic ladder, generating a present-value welfare gain of 1.28% of consumption in our baseline case.

Entrepreneurship and Urban Growth: An Empirical Assessment with Historical Mines

Authors:

Edward L. Glaeser, Sari Pekkala Kerr, and William R. Kerr

Abstract

Measures of entrepreneurship, such as average establishment size and the prevalence of start-ups, correlate strongly with employment growth across and within metropolitan areas, but the endogeneity of these measures bedevils interpretation. Chinitz (1961) hypothesized that coal mines near Pittsburgh led that city to specialization in industries, like steel, with significant scale economies and that those big firms led to a dearth of entrepreneurial human capital across several generations. We test this idea by looking at the spatial location of past mines across the United States: proximity to historical mining deposits is associated with bigger firms and fewer start-ups in the middle of the 20th century. We use mines as an instrument for our entrepreneurship measures and find a persistent link between entrepreneurship and city employment growth; this connection works primarily through lower employment growth of start-ups in cities that are closer to mines. These effects hold in cold and warm regions alike and in industries that are not directly related to mining, such as trade, finance and services. We use quantile instrumental variable regression techniques and identify mostly homogeneous effects throughout the conditional city growth distribution.

Abstract

Under increased pressure to report environmental impacts, some firms selectively disclose relatively benign impacts, creating an impression of transparency while masking their true performance; other firms' disclosures, in contrast, are more representative of their environmental performance. What deters selective disclosure? We hypothesize that selective disclosure, a novel symbolic strategy firms use to manage stakeholder perceptions, is mitigated by two forms of organizational visibility. Firms with greater domain-specific visibility are especially vulnerable to stakeholder criticism and therefore less prone to selective disclosure. In contrast, more generically visible firms are less prone to selective disclosure only when subjected to civil society scrutiny that activates these firms' latent vulnerability. We test our hypotheses using a novel panel dataset of 4,484 public companies in many industries, headquartered in 38 countries, during 2005-2008, when environmental disclosure increased among global corporations. We find that domain-specific visibility mitigates selective disclosure, that it mitigates selective disclosure more so than generic visibility, and that generic visibility mitigates selective disclosure only in the presence of civil society scrutiny. This research contributes to understanding how corporations manage the symbolic use of information and how corporate behavior is influenced by civil society scrutiny embedded in institutional processes.

Cases & Course Materials

New Century Financial Corporation (Abridged)

The case introduces students to the subprime mortgage industry and helps to understand the business model and how economics transactions of subprime mortgage originators is captured by their accounting. It illustrates the risk management roles of management, audit committee and the external auditor.

MF Global: Changing Stripes

Jon Corzine became the CEO of MF Global in March of 2010. Eighteen months later, and in the wake of a massive trade in European sovereign debt, the firm filed for bankruptcy, the 8th largest in U.S. history. As the firm failed it was discovered that over $1.6 billion in segregated customer assets was missing. The case explores issues that may have contributed to MF Global's demise, including its business model and the competitive pressures it faced prior to and following Corzine's arrival, and the strategic and managerial decisions taken by Corzine to reorient the firm. In addition, the sovereign debt trade, created to boost earnings, is described in some in some detail.

Driving Towards a Disruption?

Willy Shih and William NobleHarvard Business School Case 612-101

As Clayton Christensen drove to the studio to deliver an online executive education class, he pondered the future of management education. How big a threat did online degree programs, corporate universities, and other innovations in the delivery of management training represent to the MBA program of the Harvard Business School or other residential programs? Certainly new innovations in the industry promised to deliver management education to a much broader audience at a far lower cost. Christensen had noted that many companies were less and less present in MBA recruiting, and he believed that companies' ability to train employees within the context of their jobs was quelling their desire for MBAs with less company-specific general management training. He wondered if the changes afoot represented a threat or an opportunity for the HBS MBA program. The case presents data on the HBS MBA program, including career and professional development statistics so that students are able to assess the cost of receiving an HBS MBA, and they are able to compare that cost to an online MBA program.